Due to the Coronavirus, recent legislation has passed which is focused on providing relief for individuals who have been impacted by the global pandemic. This includes unemployment benefits, stimulus payments, retirement account withdrawal allowances, and relief for small businesses.
The amount of pressure that small businesses have been placed under due to the global and national lockdowns has been severe. These businesses have had to quickly adapt, implement new procedures to ensure their customer base is safe, and in many cases, close down entirely for the foreseeable future.
In response to this, the federal government passed the Families First Coronavirus Response Act and the Coronavirus Aid, Relief and Economic Security Act in an effort to not only provide relief for the individual, but for those who are self-employed and owners of a small business as well.
If you’re a small business owner who is in need of support, here’s how you can receive help:
Deferment of Existing SBA Loans
If you have existing business loans guaranteed by the SBA, they will be deferred for a six-month period. This means you will not be required to make payments, and instead, the SBA will pay your lender beginning with the next payment due.
If your current SBA loan is already on deferment, it will enter this six-month grace period after your current deferment has ended.
Access to Loans and Immediate Emergency Funds
Small-business owners and self-employed individuals are eligible for two loan types:
• Paycheck Protection Program Loans. These loans are made by SBA-approved lenders and are offered at an interest rate of 1%. The maximum loan amount for most people is the lesser of your average monthly payroll costs in the previous year times 2.5 or $10 million. Borrowers have six months to one year before they are required to begin making payments. The loans do not require typical fees, personal guarantees or collateral. They are to be used for payroll and compensation costs, health care benefits, mortgage interest, rent, utilities, and interest incurred on other existing business debts and all or a portion of this loan may be forgivable.
SBA-approved lenders started offering these loans on April 3rd. Funding for the first round of the $349 billion program ran out on April 15th, but an additional $310 billion in funding was signed into law and became available on April 26th.
• Economic Injury Disaster Loans. Unlike Paycheck Protection Program Loans, these are loans offered directly from the SBA. Another difference is that, as an attempt to provide relief as quickly as possible, grants of up to $10,000 are available as an advance within three days of applying for the loan.
The Economic Injury Disaster loan can be transferred into a Paycheck Protection Program loan to take advantage of loan forgiveness. In that case, the advance amount is deducted from the amount of debt eligible for forgiveness.
Debt Forgiveness for Payroll and Operational Costs
If you take out a loan under the Paycheck Protection Program, a portion will be forgivable. You will not be required to pay back the loan funds used for payroll, mortgage interest payments, rent and utilities in the eight-week period following origination. Also, this forgiveness amount will not be taxable as gross income, as debt forgiveness is often treated.
A primary goal of this law is to keep businesses afloat (even if not open) and workers paid, so the forgivable amount may be reduced if you have to reduce either the number of employees you have or the compensation of any employee, and those changes aren’t undone by June 30, 2020.
Employer Tax Credits
• Employee Retention Credit. If your business is closed to comply with government orders or suffers a decrease in gross receipts of 50% or more compared to the same period last year, you are eligible for a 50% payroll tax credit on wages up to $10,000 per employee. However, this credit is not available if you are also using a Paycheck Protection Program Loan.
• Expanded Required Leave Credit. The Families First Coronavirus Response Act requires employers to provide paid emergency sick, family and medical leave for employees who are unable to work because of COVID-19. Because these requirements are expensive, small employers and the self-employed are eligible for dollar-for-dollar reimbursements for these payments and the costs to maintain employee health insurance coverage. Reimbursement, in the form of tax credits, is available for payments that occur between April 1, 2020, and Dec. 31, 2020.
Delayed tax payments
Small businesses and self-employed workers can delay payroll tax payments normally due between now and Jan. 1, 2021. Half of the delayed taxes would be due on Dec. 31, 2021, and the remaining balance by Dec. 31, 2022.
If you are a small business in need of financial support, please know that there are options for relief that can and should be utilized as needed. Our firm has supported a large number of clients who are business owners, and we want to support these individuals by providing resources and information that can help. Please do not hesitate to contact our firm if you are in need of additional information.